Office Depot To Acquire CompuCom For About $1 Bln; Cuts FY Outlook

10/3/2017 10:25 PM ET

Office Depot, Inc. (ODP) said that it has entered into a definitive agreement to acquire CompuCom Systems, Inc., a provider of IT services, products and solutions that enable the digital workplace for enterprise, small and midsize businesses, for approximately $1 billion. The company also provided a preliminary estimate of third-quarter financial results and a lowered outlook for Office Depot's stand-alone business for 2017.

As per the terms of the agreement, Office Depot will acquire CompuCom from Thomas H. Lee Partners, L.P. or "THL", a premier private equity firm, for a total consideration of approximately $1 billion, which includes the repayment of CompuCom debt and issuance of new Office Depot shares. Following the transaction, THL will hold an equity position in Office Depot of approximately 8% of total shares outstanding.

The acquisition of CompuCom is expected to accelerate Office Depot's ability to enhance shareholder value and pursue topline growth. While Office Depot intends to provide greater detail surrounding the long-term financial impact of the transaction during its next earnings call in November, Office Depot expects to add approximately $1.1 billion of revenue; Deliver expected cost synergies of over $40 million within two years; Realize substantial revenue synergies over time as a result of the opportunity for CompuCom to access Office Depot's multi-channel customer base.

This transaction is subject to customary closing conditions, including required regulatory approvals. This transaction is not subject to a shareholder vote and is expected to close by the end of the year.

Office Depot said it has a demonstrated track-record of success in integrating acquisitions and delivering synergies, including over $750 million in cost savings from the OfficeMax acquisition alone.

Office Depot noted that it will finance the acquisition with new debt and the issuance of approximately 45 million shares of its common stock to THL. Office Depot expects to refinance CompuCom's existing debt with a new term loan of approximately $750 million.

Office Depot said it remains committed to returning capital to shareholders including its current cash dividend plan. The existing share buyback plan authorized by the Board of Directors remains in place.

Office Depot expects to report its third-quarter 2017 financial results in November. Based on a preliminary assessment, the company expects to report total reported sales decline between 7-8% for the quarter including store closures; Between 5-6% decline in comparable retail store sales; Between 5-6% decline in constant currency sales within the BSD; Adjusted operating income between $125-$135 million for the

quarter.Office Depot expects to provide an updated long-term outlook, including the impact of the CompuCom acquisition, with the announcement of its third-quarter 2017 financial results, however the company has lowered its outlook for 2017.

Adjusted operating income for fiscal 2017 is now estimated to be between $400-$425 million, excluding the impact of this transaction, compared to the previous estimate of approximately $500 million. The updated guidance is driven by a number of factors, including three hurricanes in the U.S. and Puerto Rico, where a significant concentration of our retail and BSD customers are located, particularly in Texas, Florida and Puerto Rico; lower sales and store traffic during this year's back to school period, which is typically a strong season for Office Depot.